The Role Of A Transnational Corporation Commerce Essay

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A transnational corporation (TNC) is a large company engaged in international production and, usually, sales. The largest TNCs-also known as MNEs, for transnational enterprises-have production sites in several or even dozens of nations. An TNC typically scans the whole world, or at least substantial regions of the world, for markets, production sites, and sources of raw materials.

A TNC can be defined as a company that is headquartered in one country but has operations in two or more countries. Large TNCs account for a large percentage of world sales and employment and are therefore courted by governments of the world. TNCs have existed for centuries for example, the East India Company which was founded in 1600, but it is of late that we witness a proliferation of TNCs. This is due to many factors, such as advances in transportation and telecommunication, and the availability of capital across the globe, all of which are the results of globalization.

Looking at China as the example that we will use in this assignment, it is attractive to businesses and investors for a number of reasons. First and foremost is that it has cheap and plentiful labour. The country has the world's largest population and its GDP is relatively low, meaning that employee wages are low. This is why many manufacturers have shipped operations to China in a bid to lower manufacturing costs. Foreign direct investment in China covers a wide range of manufacturing sectors, several large hotel projects, restaurant chains, and petrochemicals. Foreign companies have entered agreements establishing more than 20,000 equity joint ventures, contractual joint ventures, and wholly foreign-owned enterprises in China. More than 100 U.S.-based multinationals have projects in China, some with multiple investments. Cumulative U.S. investment in China is valued at $48 billion which makes it the biggest foreign investor (US Department of Commerce, 2009).

Strong economic growth is another reason why many TNC want to establish a presence in China. The country's economy grew at an average rate of 10% per year during the period 1990-2004, the highest growth rate in the world. China's gross domestic product (GDP) grew 9.3% in 2003, and even faster, 9.5%, in 2004, despite attempts by the government to cool the economy (Fortune, 2005). While the current global economic crisis affected China's growth in 2008, it was among the first country to bounce back and continue to register strong economic growth (Newsweek, 2009). Currently, China still exports a majority of its goods, but domestic consumption has been growing in recent years and is expected to grow further in years to come. The presents a huge untapped market for consumer goods which is why TNC feels it is crucial to establish a presence there now when it is still relatively easy, then later when there are more domestic competitors.

Competitive Advantage Of TNC

Effective Incorporating Planning

Effective incorporating planning is a very important element in managing a business for success (Borman, 2005). It is also a very important part of human resources management in implementing and ensuring the strategic directions of an organization is achieved. Effective incorporating planning has many roles and objectives in an organization. The critical evaluation, managers needs to realize that it is an effective financial control system.

According to many researchers and academic periodicals, effective incorporating planning in TNC usually ends with excellent performance (Borman, 2005). It is the duty of every manager or the employer to communicate with their staff. These dialogues should provide clear, honest and feedback, with the hope that it would help to solve some professional problems. Every employee has the responsibility to fully participate in the dialogue, so they would understand their responsibilities and expectations, and communication obstacles or training need to complete their role in the desired level.

First and foremost, incorporating planning should be consistent and constant (instead of having a system that occurs once a while on a yearly basis). Incorporating planning should occur throughout the year.

Secondly, we should always remember that incorporating planning should be bi-directional. This is to ensure both parties, be it the employer or the employee, the manager or the lower level workers, and understand each other's expectation very well.

Taxation Benefits

TNC hold important responsibilities in the world (Peasnell, 2006). Many compete with each other and leading to tax competitions. In order to fight against each other, certain offers are given to TNCs like pledges of governmental assistance, tax breaks, lax environmental and labor standard enforcement. Such offers are more and more attractive to foreign subsidiaries and it's a stepping stone towards better autonomy.

Able To Handle Globalization

Globalization can be defined as the integration of economies via trade and the flow of investments and the creation of products and services, all of which serve to promote global competitiveness (Ardalan, 2009). Otherwise, globalization can be described as promoting the integration of international markets that are not confined to national boundaries. In particular, globalization has given rise to multinational corporations with a global outreach. All facets of manufacturing, sales and marketing, consumption, tastes and preference have been altered by globalization, as is the dramatic rise in the level of trade among businesses that give rise to specialization in particular areas. Globalization has promoted efficiency in the manufacturing process and the shift of manufacturing activities to low skilled, labour intensive nations. On the other hand we have witnessed the shift of highly skilled and educated workers to more developed countries that have moved up the knowledge based economy value chain. Large scale production has moved from achieving economies of scale to creating economies of scope, particularly in high income nations. The manufacturing cycle has been greatly reduced by focusing more on higher product quality, innovation and niche marketing. In addition, external financial and related services are incorporated into the manufacturing cycle. Globalization is exemplified by the harnessing of the best facets of pluralism and multiculturalism to create a dynamic workplace. More emphasis is placed on activities that are knowledge intense and this is particularly obvious in developed countries (Christine, 2006).

Other Competitive Advantage

More than anything else in recent history, the new global economy has profoundly altered the way business is conducted and renders both time and geographical distance of little consequence. Information technology has been instrumental to this change. Its manifestation is most pronounced in the dramatic transformation in the production of goods and services. Formerly, international transactions were conducted by independent entities. Now, they are internalized and are performed within a single multinational corporation. As a result, services can be separated from production, and performed in a decentralized manner. Therefore, the new global marketplace consists not of individual companies that operate nationally or regionally, but multinational corporations that serve an international market, but whose products and services are tailor made for each domestic market. The quest for profit is the driving force behind the internationalization of production. This is because information technology and highly skilled labour are costly to a firm, and the only way a company can flex its operating costs is by creating marketing niches that serve a global market instead of a small domestic one. The global entrepreneur is the energy source of this new global economy.


Based on this discussion, one can infer that business management and globalization are concepts that are symbiotic in nature, when placed in the context of TNC. TNC must formulate strategies that allow it to jump on the globalization bandwagon, strategies that endow it with the ability to better cope with the challenges and problems that it faces (Akther, 2007). Furthermore, formulating international market strategies permit a multinational organization to collect appropriate and extra information pertaining to its target markets. Such information is extremely useful when a company develops new products and services to cater to the needs, wants and demands of its target customers. TNC are motivated to become globalized for a number of reasons. Common factors include the desire to expand and diversify operations, taking advantages of new markets and business opportunities, increasing a company's talent pool and other assets and to achieve fame and prestige. The new global economy is powered by innovation and entrepreneurs who demonstrate vision and courage. It is based on new concepts and ideas, new viewpoints and new business models. Consequently, new investment opportunities abound and globalization has resulted in millions of new jobs being created. Also, the economic environment has changed in countries touched by globalization, resulting in a greater interdependence and linkage among countries. This is a trend that is anticipated to continue and intensify well into the new century (Svennson, 2002).